On One Shortcoming of Group Incentives

30 Pages Posted: 2 Sep 2013

See all articles by Kirill E. Novoselov

Kirill E. Novoselov

Shanghai University of Finance and Economics

Date Written: September 1, 2013

Abstract

Productive tasks are often designed so as to make one agent's output depend on the contributions of others, in which case the agents work as a group. This paper shows that, even if organizing agents in a group has no effect on productivity, task interdependence increases the principal's expected payoff. It does, however, reduce the total expected surplus. The results hold because, when shirking by one team member requires cooperation from his colleagues, it is cheaper to prevent, but the principal's expected payoff is maximized when the productive efforts are distorted away from the second best. The paper discusses some implications of this inefficiency.

Keywords: group incentives, task assignment, task interdependence, efficiency loss

JEL Classification: D82, D86

Suggested Citation

Novoselov, Kirill E., On One Shortcoming of Group Incentives (September 1, 2013). Available at SSRN: https://ssrn.com/abstract=2319172 or http://dx.doi.org/10.2139/ssrn.2319172

Kirill E. Novoselov (Contact Author)

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

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